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March 10, 2023
After several years of community banker engagement with the Consumer Financial Protection Bureau, the bureau has released for public comment an ICBA proposal to improve mortgage disclosures required under TILA-RESPA Integrated Disclosure rules.
Given the potential benefits of the revamped TRID disclosures for consumers and lenders—particularly community banks in rural communities—ICBA encourages community bankers to use the CFPB’s comment portal to urge the bureau to test and ultimately adopt the proposal.
Originally submitted through the CFPB’s Trial Disclosure Sandbox, ICBA’s proposal has now been released as a blog post requesting public comment. The bureau would permit community banks to test modified disclosures for consumer construction and construction-to-permanent loans, which are a core offering of community banks in many local communities.
Developed alongside a group of community bankers, technology vendors Land Gorilla and Wolters Kluwer, and the Community Bankers Association of Illinois, the proposal would modify the current Loan Estimate and Closing Disclosure. If approved by the CFPB, the disclosures would include improved construction phase details, a construction cost breakdown, and enhanced disclosures regarding the consumer’s permanent loan financing.
The current TRID disclosure regime, as required by statute, provides consumers detailed disclosures of all pertinent costs associated with a mortgage loan transaction. Most mortgage transactions are for either purchasing a home or refinancing an existing mortgage loan. Unfortunately for many consumers and lenders, this means the current regime does not adequately disclose the components of construction loans.
As ICBA told the CFPB in proposing the new disclosures, first-time homebuyers in small towns and rural communities often build their first home due to a limited availability of affordable “starter” homes. Many community banks provide construction loans, and some offer loans that combine the construction loan with the permanent mortgage loan, reducing costs for borrowers while providing certainty that they will have financing once the home is completed.
While the 2013 TRID rule extended RESPA to consumer construction and construction-to-permanent loans and required creditors to utilize the Loan Estimate and Closing Disclosure on these transactions, the use of these disclosures for construction loans is confusing, leading some creditors to avoid making these loans due to compliance concerns. Streamlining the TRID mortgage disclosure process for single-close construction-to-permanent loans—as ICBA has proposed—would support the use of these loans, save time for the lenders, and create enormous cost savings for consumers.
Community bankers who support updating the TRID Loan Estimate and Closing Disclosure to better reflect construction loans should weigh in on the CFPB website before the March 29 comment deadline.
To make the strongest case, ICBA encourages community bank supporters to tell the CFPB improving TRID disclosures would:
Support consumers by providing greater clarity about the loan process and the overall costs to build and finance their home.
Streamline the process for community lenders by clarifying disclosure requirements and addressing compliance challenges that have dissuaded some lenders from offering these loans in their communities.
Expand access to more affordable homes in rural areas with limited housing supply and where building a home may be the best or only option for first-time homebuyers.
The community bank effort to streamline the TRID disclosures is several years in the making, but by working together to explain the consumer benefits of ICBA’s plan, we can help ensure the CFPB has the information they need as they weigh this critical decision.
Ron Haynie is senior vice president of housing finance policy for the Independent Community Bankers of America.